05 Business Planning - Conclusion

Financial Projection

The business plan so far has been about describing the business idea (product or service), starting in the appropriate market, and with a plan of action for daily working. This section deals with the financial projections of all that. It's the most clarifying section of precisely where the money will be used. An investor might read this section first (after the executive summary) to get a sense of the business plan before reading the rest.

Now that the importance has been emphasised, it can be appreciated that the figures used in the financial plan should be based in fact as far as possible. There are plenty of situations that can't be quantified at the start, but should always be estimated within reason.

For example - hiring a security guard will have a variance on rate depending on many factors; but getting a quote will allow for an accurate market-based budget. For something like stationary, however, it would be tedious to obtain quotes for every single office item. Instead, a reasonable amount of money can be allocated for the expected budget. As the business begins trading, this "office consumables" amount will be amended to reflect a more accurate budget.

1. Projected Income Statement

2. 3 Year Projection

3. Cash Flow Projection

4. 3 Year Cash Flow Statement

5. Projected Balance Sheet

6. Break-even Analysis / Scenario Planning

7. Use of Capital

Projected Income Statement

After the executive summary, this is the next most important part of the business plan. It shows how the first year of business is expected to progress financially. It will ultimately inform the investor how much sales the business is expected to make; and how much of that is profit after costs.

There isn't much to describe about this section - it's all numerical figures laid out over twelve months. Use the template to consider your own expenses. Be sure to use figures that you have validated in the appendix where important.

3-year or 5-year Projection

Optional, but recommended. This saves the potential investor doing their own calculations to forecast further into the future. If the repayment period is longer than 12 months, then you must include this projection to include the turnaround time. Another reason is to show the changes in income projection after any loans are repaid; or financing completed.

Cash Flow Projection

When credit is involved, there is always a disparity between the actual money in the current account and the expected money (in or out). Suppliers that offer terms (30 day or 60 day, etc.) allow you to use the money for something else until it is time to pay. For example, buying cement and aggregate on credit means you don't need the cash to purchase these raw materials. Over the next month, you can produce bricks and only worry about the wages required. After sales, you generate cash money which you can then use to pay the suppliers of the cement and aggregate.

I can be more complicated when you start offering credit to your customers as well as purchase on credit from your suppliers. This is why a cash flow projection is needed to maintain an overview of how the cash is moving to ensure you do not end up short of money when you need to pay.

If the business starts out as strictly cash only and suppliers only offer good cash-on-delivery, then the cash flow projection isn't going to look too dissimilar to the income projection.

Projected Balance Sheet

The balance sheet goes together with the income statement as a set of financial documents to show the status of any business. With this business plan, you must show the investor how you intend to employ the funding; and how all future money movements also contribute to the changes in capital assets. The projected balance sheet is going to show the investors owners equity after one year in business.

Break-even Analysis / Scenario Planning

The income projection will show the retained profit, against which the repayments for any loans are made; But this is just a single expected projection. Break-even analysis can help when considering various options that will affect the profitability. For example, if you are considering fulltime employees versus outsourcing contract work, you might do some scenario planning to test the effects of these decisions.

You can also simulate a best-case and worst-case scenario to see how comfortable your risk is. If the business does not provision for any delay in sales, the break-even analysis will reveal the narrow margins of safety and allow you to adjust accordingly.

Use of Capital

This is a break-down of what you would have used as capital expenditure in the balance sheet. Detail out the equipment required and what use it might contribute to the business.

Appendices

This section isn't something that you would plan for - it is to hold the evidence of the supporting documents that back up the facts used in the business plan. It would mostly hold the order in which they are referred to in the business plan; but this isn't a rule.

More is better, in this situation - the more effort you put into researching your business plan, the more confidence you will instill in the potential investor that you have reconciled your theoretical scenario plan (with the real world); But the inherent benefit of researching the financial figures is that you actually have a more reliable plan that will ultimately show less deviation from the real world implementation.

The collection of documents you'll likely find in this section from all your planning will include:

• Agreements

• Licences, Patents & Trademarks (IP)

• Curriculum Vitae's of key employees / managers

• Marketing material / research

• Property plans (municipal submissions)

• Photos

• Charts, illustrations, graphs

What next?

Now that you have run through the overview of business planning for brick manufacturing, it's time to concretise the guidance (excuse the pun).

While this guideline has used some structure to encompass a plan of action, don't be fearful when it comes to breaking out of that structure. As long as your business plan has a logical flow, can be easily digested by the reader and ultimately paints a picture of success, you can improvise. At the the end of the day, you are trying to get money from an investor; not submit a homework assignment. If you are doing a business plan for a creative artistic endeavour, presenting the business plan in a novel fashion might sell your idea better (Except keep the financial projections - The money figures are important!)

Read through your business plan and make sure you have answered the basic question - "why you need money and why the investor should have confidence"

Once you have your business plan and you are ready to make money, scout out potential investors wherever you can. Go to the chamber of commerce in your city; approach a bank to discuss the terms of a loan; find co-operatives in your local area that might want to partner in order to increase brick availability in the area; approach the local municipality or councillors for your area;

It is also a great idea to find out what government programmes exist to help kickstart your business. There are many funding avenues and government sponsorships for new business and business expansions. Many budgets go unspent and therefore reduced in the following financial year - that is why provincial government wants to spend the money instead of having surplus.

Bonus: Final tips for your business plan

• Use good portrait photos of the management team. A good photo will portray a good business plan.

• Make a presentation - many times a business plan will precipitate a meeting with potential investors. You could have a simple discussion on the business plan or you could have a ready-made presentation to impress them.

• Take a sample - the business is to make bricks and even if the sample brick isn't your product, it adds a real depth into the reason for asking for money. It's tangible.

• Testimonial. It's a requisite for any résumé and makes a big impact in a business plan - get a character reference for past partnerships to further coax an investor into a state of trust.

• Make two or three business plans as backup for investors of differing levels of financial commitment. If the investor wants to invest more or less, have alternative options ready - this will reflect your preparedness well.

• Print your business plan, bind it and present it to the potential investor face-to-face. Even during these pandemic times, people aren't going to respond favourably to large funding requests via email. Make an effort to show your respect.

• Allow for criticism from the potential investor. The fact that you are asking for money and they have money to offer shows that they are in a more experienced position in life. Take their advice and feedback about your business proposal with gratitude; instead of taking it personally. If they are still willing, make the changes and return to them with your updated plan.

• Don't start a bidding war between investors. Your business plan is not an auction - if you tell investors that you have other investors and try to hasten them into a decision, they are likely to simply abandon your opportunity.

• If possible, try attract an investor that can mentor you. Unlike a bank, which will be indifferent outside of the presented facts, an investor will want to see their investment succeed. Don't hinder your potential mentor with many questions; but do try seek advice in times of great uncertainty. It is a partnership, after all.

Good luck, entrepreneur. Send photos and stories of your success! And remember that the success is the journey, not the destination.